Across the economy, many otherwise viable small and
medium sized businesses are facing significant challenges due to disrupted cash
flow. At the same time, businesses retain fixed obligations including rent,
utilities, and employee expenses.
The Coronavirus SME Guarantee Scheme will provide
support for these businesses. Under the Scheme, the Government will provide a
guarantee of 50 per cent to SME lenders for new unsecured loans to be used for
working capital. This will enhance these lenders’ willingness and ability to
provide credit, which will result in SMEs being able to access additional
funding to help support them through the upcoming months.
SMEs with a turnover of up to $50 million will be
eligible to receive these loans.
The Government will provide eligible lenders with a
guarantee for loans with the following terms:
- Maximum total size of loans of
$250,000 per borrower.
- The loans will be up to three years,
with an initial six month repayment holiday.
- The loans will be in the form of
unsecured finance, meaning that borrowers will not have to provide an asset as
security for the loan.
Loans will be subject to lenders’ credit assessment
processes with the expectation that lenders will look through the cycle to
sensibly take into account the uncertainty of the current economic conditions.
As part of the loan products available, the
Government will encourage lenders to provide facilities to SMEs that only have
to be drawn if needed by the SME. This will mean that the SME will only incur
interest on the amount they draw down. If they do not draw down any funds from
the facility, no interest will be charged, but they will retain the flexibility
to draw down in the future should they need to.
The Scheme will commence by early April 2020 and be
available for new loans made by participating lenders until 30 September 2020.
QUICK AND EFFICIENT ACCESS TO
CREDIT FOR SMALL BUSINESSES
The Government is providing an
exemption from responsible lending obligations for lenders providing credit to
existing small business customers. This exemption is for six months, and
applies to any credit for business purposes, including new credit, credit limit
increases and credit variations and restructures. Responsible lending
obligations do not currently apply to lending which is predominantly for a
business purpose, but it can take time and effort for lenders to be satisfied
that the money borrowed meets this test. By providing a temporary exemption
from responsible lending obligations, this reform will help small businesses
get access to credit quickly and efficiently.
SUPPORTING THE FLOW AND REDUCING
THE COST OF CREDIT – RESERVE BANK OF AUSTRALIA
The Reserve Bank of Australia (RBA)
announced a package on 19 March 2020 that will put downward pressure on borrowing
costs for households and businesses. This will help mitigate the adverse 2
consequences of the Coronavirus on businesses and support their day-to-day
trading operations. The RBA is supporting small businesses as a particular
priority. The RBA has announced a term funding facility for the banking system.
Banks will have access to at least $90 billion in funding at a fixed interest
rate of 0.25 per cent. This will reinforce the benefits of a low cash rate by
reducing funding costs for banks, which in turn will help reduce interest rates
for borrowers. To encourage lending to businesses, the facility offers
additional low-cost funding to banks if they expand their business lending,
with particular incentives applying to new loans to SMEs. In addition, the RBA
announced a further easing in monetary policy by reducing the cash rate to 0.25
per cent. It is also extending and complementing the interest rate cut by
taking active steps to target a 0.25 per cent yield on 3-year Australian
ENSURING BANKS ARE WELL PLACED TO
LEND – AUSTRALIAN PRUDENTIAL REGULATION AUTHORITY
The Australian Prudential Regulation
Authority (APRA) has announced temporary changes to its expectations regarding
bank capital ratios. The changes will support banks’ lending to customers,
particularly if they wish to take advantage of the new facility being offered
by the RBA.
The information in this document is for general information only. This is Shoebox Tax’s interpretation of the law as recently
passed in the Australian Parliament. This may or may not align with the views of the ATO. Until our understanding has been
confirmed by the ATO this remains Shoebox Tax’s interpretation only.
This should not be taken as constituting profession advice from Shoebox Tax. You should access other advice to check how the
law relates to your unique circumstances. This information is offered in good faith and Shoebox Tax is not liable for any loss
caused, whether due to negligence or otherwise arising from the use of, or reliance on, the information provided directly or
indirectly , in this document.